SEC Charges ex-Nomura Traders

The Securities and Exchange Commission (SEC) recently filed suit against Kee Chan and James Im alleging that they deliberately misleading customers with false price information for bonds while acting as mediators on trades. According to the Complaint, they pretended to still be negotiating bond purchases with a third-party seller at a higher cost when they had already secured the bonds. The two traders operated the commercial mortgage-backed securities (CMBS) desk at Nomura Securities International Inc. The SEC estimated that they fraudulently generated more than $750,000 in profit beginning in 2010.

The SEC’s Complaints alleges that Chan and Im with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.

“As alleged in our complaints, Im and Chan operated under cover of an opaque CMBS secondary market to gain illegal trading profits and potentially larger bonuses by lying to firms on the other side of their trades about the prices at which they were buying and selling securities,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The two traders took advantage of the turbid market with the intent to increase their department’s profit and their personal bonuses by using false information. According to the SEC they would often brag about them through text chat and emails. They went as far as to fabricate email correspondences to secure a trade with a potential buyer. The SEC describes one of Chan’s 2012 trades with someone referred to as Trader B as follows:

1. Chan submits a bid for a bond at 51-01 (or $51 and 1/32, or $51.03125).
2. Twenty minutes later, Trader B inquires about bond. Chan allegedly implies that he bid 51-05 and even so, “[i] don’t think that’s a winner.”
3. Trader B, assuming 51-05 to be the purchase price, offers ”52/…pay u on top” – i.e., 52 plus extra for Chan’s efforts.
4. Forty minutes later, Trader B says he’s concerned that he’s overpaying: “Feel like we got smoked on this one.” Trader B tells Chan: “between u and me basically [Trader B’s partner] is certain u made up that u bid 51-05 already in order to get us to bid.”
5. Chan sent an email to Trader B purportedly forwarding an earlier internal Nomura email from Chan that seemed to corroborate Chan’s 51-05 bid. The email forwarded by Chan was fake. In fact, Chan fabricated the phony email from an actual email that he had sent internally earlier in the day, altering the bid price from 51-01, which appeared in the actual email, to 51-05, the price that Chan told Trader B he had bid for the bond.

Kee Chan agreed to settle the charges by paying $51,965 in disgorgement, $11,758 in interest and a $150,000 penalty. He is also barred from being employed in the securities industry for the next three years. James Im has not yet agreed to settle.

This suit by the Securities and Exchange Commision is part of a federal initiative to crackdown on deceptive bond trading practices. This is not the only case involving Normura a small bank on Wall Street. The bank is at the center of another fraud case. A former employee has stated under oath that Normura had trained him to lie to traders in order to boost the company’s profits. The bank denies that it did anything wrong..